Measuring Productivity 203make it this time around. It’s not enough to look at standards in isolation. One
must view them in the context of total management.”
“Right,” said Jane approvingly. “And that means that your best norms to
develop are probably what are called currently attainablestandards. These are
standards that can be met but still represent a challenging goal. Let me read
you a quote:
Such standards provide definite goals, which employees can usually be ex-
pected to reach, and they also appear to be fair bases from which to measure
deviations for which the employees are held responsible. A standard set at a
level which is high yet still attainable with reasonably diligent effort and atten-
tion to the correct methods of doing the job may also be effective for stimulat-
ing ef ficiency.^2I think that’s the kind of standard you are after.”
“ You’re right. And, I tell you there are real advantages to standards set at
this level. My guys find them very motivating. Also, when it comes time to cost-
ing jobs out for pricing purposes, we have a reasonable shot at making those
standards. Of course, that wouldn’t stop us from trying for perfection. It’s just
that we wouldn’t have management breathing down our necks when we didn’t
make it.”
Budgets
“Tell me one more thing, though,” said Tom. Why do we have to go to all this
bother to develop standards. Why can’t top management just use last year ’s
numbers? That will give them a base for comparison.”
“True,” said Jane. “But you’ve got to remember that last year ’s actuals re-
f lect last year ’s circumstances. Things may have changed this year so much
that last year is not a fair comparison. How would you like it if they didn’t ad-
just your materials budget for inf lation but expected you to produce as much
this year as you did last?”
“Okay—you’ve made your point. But, why can’t they just get our con-
troller to draw up a budget at the start of the year. Why do I have to get
involved?”
“Two reasons. One is that the controller can’t draw up a budget without
standards. Standard costs are the unit costs that go into a budget. The budget
contains your standards multiplied by the expected volume of sales provided
by the marketing department.
“The other reason you need to get involved is that the budget needs to be
adjusted for volume. You want them to evaluate you on the basis of a f lexible
budget, as opposed to a staticbudget. The only way to be fair to people is to use
a f lexible budget. Look at these numbers for instance.” Jane scribbled down
the numbers appearing in Exhibit 7.1.
“Notice how the budget is drawn up in the first column: You estimate the
volume for the year and multiply it by the estimated unit selling price or the